Misrepresentation Distinguished From Conditions And Warranties

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Misrepresentation Distinguished From Conditions And Warranties

It may be stated as a rule, subject to exception in case of certain contracts to be hereafter noticed, that innocent misrepresentation or nondisclosure of fact does not affect the validity of consent. The tendency of the courts has been to bring, if possible, every statement which is important enough to affect consent into the terms of the contract, and a representation which cannot be shown to have had so material a part in determining consent as to have formed, if not the basis of the contract, at least an integral part of its terms, is set aside altogether. If it is a part of the contract, it is no longer called a mere misrepresentation; it is a condition or warranty, and its falsity does not affect the formation of the contract, but operates to discharge the injured party from his obligation, or gives him a right of action based on the contract for loss sustained by reason of the untruth of the statement. The statement in such case is a term of the contract.

The distinctions are well shown in a leading English case. The action was brought on a charter party in which it was agreed that the plaintiff's ship, "then in the port of Amsterdam," should proceed to a certain port and load a cargo. At the date of the contract the ship was not in the port of Amsterdam, and did not arrive there for several days. The defendant refused to carry out the agreement, and repudiated it. The court held that the statement that the ship was in the port of Amsterdam was intended by the parties to be a condition, and a breach thereof discharged the charterer.59

Williams, J., in giving judgment, thus distinguishes the various parts or terms of a contract: "Properly speaking, a representation is a statement or assertion, made by one party to the other, before or at the time of the contract, of some matter or circumstance relating to it. Though it is sometimes contained in the written instrument, it is not an integral part of the contract, and consequently the contract is not broken, though the representation proves to be untrue; nor (with the exception of the case of policies of insurance - at all events, marine policies, which stand on a peculiar anomalous footing) is such untruth any cause of action, nor has it any efficacy whatever, unless the representation was made fraudulently, either by reason of its being made with a knowledge of its untruth, or by reason of its being made dishonestly, with a reckless ignorance whether it was true or untrue. * * * Though representations are not usually contained in the written instrument of contract, yet they sometimes are. But it is plain that their insertion therein cannot alter their nature. A question, however, may arise whether a descriptive statement in the written instrument is a mere representation, or whether it is a substantive part of the contract. This is a question of construction which the court, and not the jury, must determine. If the court should come to the conclusion that such a statement by one party was intended to be a substantive part of his contract, and not a mere representation, the often-discussed question may, of course, be raised, whether this part of the contract is a condition precedent, or only an independent agreement, a breach of which will not justify a repudiation of the contract, but will only be a cause of action for a compensation in damages. In the construction of charter parties, this question has often been raised with reference to stipulations that some future thing shall be done or shall happen, and has given rise to many nice distinctions. Thus, a statement that a vessel is to sail, or be ready to receive a cargo, on or before a given day, has been held to be a condition,60 while a stipulation that she shall sail with all convenient speed, or within a reasonable time, has been held to be only an agreement.61 But with respect to statements in a contract descriptive of the subject-matter of it, or of some material incident thereof, the true doctrine,

established by principle as well as authority, appears to be, generally speaking, that, if such descriptive statement was intended to be a substantive part of the contract, it is to be regarded as a warranty; that is to say, a condition on the failure or nonperformance of which the other party may, if he is so minded, repudiate the contract in toto, and so be relieved from performing his part of it, provided it has not been partially executed in his favor. If, indeed, he has received the whole or any substantial part of the consideration for the promise on his part, the warranty loses the character of a condition, or, to speak perhaps more properly, ceases to be available as a condition, and becomes a warranty in the narrower sense of the word, viz. a stipulation by way of agreement, for the breach of which a compensation must be sought in damages."